How much are sales and property taxes expected to increase?
Economic forecasting is a notoriously dicey way to make a living.
One joke that those in the profession like to trot out describes an economist as someone who’s paid to guess wrong about the economy. Another imagines what happens when three economists go target shooting: The first one fires a shot that’s wide to the left; the second overcorrects to the right; and the third promptly declares, “We got it!”
So, it may not be terribly surprising that the non-economists who draft local government budgets can end up all over the map with the economic projections they use to estimate revenues. This is particularly true in the case of sales tax receipts, which depend on the vicissitudes of consumer confidence and inflation. But it also applies to ostensibly stable revenue sources like property taxes due to fluctuations in growth and development.
This variability has been quite evident in Alamance County this year, as different local government administrators have tried to puzzle out their future revenues based on a range of economic assumptions and personal predilections.
Sales tax variations
According to the proposed spending plans that have come out this spring, the county and its six largest municipalities have assumed sales tax receipts that range from a flat haul in Elon to a 5.5 percent increase in Mebane. These same seven jurisdictions have penciled in an even wider range of figures for the “natural growth” they expect in property tax revenues as new development comes onto the tax rolls.
In most cases, the county and its municipalities are fairly optimistic about the fate of these two revenue streams in the next financial cycle. Even so, the managers in most of these jurisdictions have proposed hikes in their property tax rates to cover their projected expenses.
These proposed rate increase include a recommended 3-cent hike from Graham’s city manager, a 5-cent bump from Elon’s town manager, and a 2.25-cent adjustment that Alamance County’s manager has pitched to the county’s board of commissioners. Meanwhile, Mebane’s city manager proposed a 2-cent hike that the city council rejected when it approved a new budget on Monday. [See separate story in this edition.] In Burlington, however, the council tacked an extra penny onto the city manager’s proposed 7-cent increase when it adopted a new spending plan for the city on Tuesday. [See separate story in this edition.]
In Gibsonville, the town manager recommended an ostensibly flat property tax rate that the board of aldermen went on to accept on Monday. [See separate story in this edtion.] This hold-the-line figure is nevertheless 12.31 cents more than the “revenue neutral” rate the town would need to break even after a recent property tax revaluation in Guilford County, which comprises about half of Gibsonville’s territory.
Of the seven largest local governments in the county, the town of Haw River is the only one whose manager proposed a genuinely level property tax rate. Haw River’s town council went on to enshrine this rate in the new budget it adopted on Monday while a majority of their counterparts in Mebane signed off on their own no-tax-increase budget over their manager’s recommendation. [See separate stories on Haw River and Mebane’s budgets in this edition.]
The state of North Carolina has, for its part, been relatively upbeat in its own economic forecasts despite the widespread sense of anxiety that many residents have about their personal finances.
In its latest “consensus revenue forecast,” the N.C. Office of State Budget and Management anticipates a 2.1-percent increase in the funds that will pour into the state’s coffers in the next fiscal year. This state agency bases its prediction, in part, on the $979 million in “overcollections” that it expects in the current year, which officially ends on June 30. The office also points to strong “economic tailwinds” thanks to “AI-related investment,” “strong stock market performance,” and “robust corporate profits.”
This rosy outlook hasn’t necessarily carried over to the local level, where the sentiments on Wall Street tend to give way to very different experiences along Main Street.
“We have been aware, over the last twelve months, that the county has been facing a sizable budget deficit. In addition, we are all aware that goods and services are increasingly more expensive. We experience this in our own household budgets, and local governments are not exempt from the very same inflationary pressures that we are each experiencing.”
– Alamance County manager Heidi York
In the introduction to her own proposed budget, Alamance County’s manager Heidi York gave full vent to the sense of uncertainty that rising gas prices and other cost increases have recently posed for many areas residents.
“We have been aware, over the last twelve months, that the county has been facing a sizable budget deficit,” she acknowledged. “In addition, we are all aware that goods and services are increasingly more expensive. We experience this in our own household budgets, and local governments are not exempt from the very same inflationary pressures that we are each experiencing.”
These feelings of angst didn’t affect York’s forecasts for the county’s sales and property tax revenues. On both scores, she predicted natural growth of about 3.6 percent in the county’s property tax base and the same proportion of increase in the county’s sales tax receipts.
The county isn’t alone in the upward bent of its estimates – with most of its larger cities and towns assuming some level of increase in both their sales tax receipts and their property tax proceeds.
Revenues projected to increase
When it comes to sales tax projections, many cities and towns in North Carolina rely on a statewide estimate that the N.C. League of Municipalities publishes ahead of each fiscal year. In March of this year, the league put this figure at 3.1 percent. In their own revenue assumptions, the city managers in both Burlington and Graham have used a 3-percent growth factor that approximates the league’s statewide estimate. Haw River’s town manager also acknowledged the league’s 3.1 percent standard before opting for a 2-percent increase in order “to be cautious of over-estimating sales tax revenue.”
In Mebane, Gibsonville, and to a lesser degree Burington, sales tax distributions from Alamance County are muddled by the funds they also receive from the other counties they straddle. In Mebane, funds from Orange County have been factored into an estimated increase of 5.5 percent. Meanwhile in Gibsonville, an anticipated 5.36 percent increase in sales tax revenue from Alamance County has been offset by an expected 5.33 percent dip in Guilford County’s distributions, leaving the town with an overall increase of 1.63 percent.
Running counter to all of these jurisdictional trends is the town of Elon, which has no change at all in its estimated sales tax receipts, according to a memo that town manager Richard Roedner released alongside his proposed budget.
“I am projecting there will be minimal change from current year to the coming year,” Roedner asserted when he put out the first draft of his budget in March. “To date, I have not seen any viable information that suggests a significant growth in sales tax receipts”
As for the “natural” increases in property tax revenues, Alamance County’s tax office has been keeping track of the natural growth in each jurisdiction’s tax base – and it has passed these figures along to the municipalities that have requested them as a guide to their budgetary predictions.
Property values up
According to Alamance County’s tax administrator Brad Fowler, the natural growth rates for the current fiscal year range from 2 percent in Elon to 8 percent in Haw River, while Burlington, Graham, Mebane, and Gibsonville have been credited with gains of 2.25, 5.5, 7.5, and 3.75 percent, respectively. In each case, these numbers apply only to territory within Alamance County, which excludes the 20 percent or so of Mebane which lies within Orange County, as well as the half of Gibsonville and the sliver of Burlington that are situated on the far side of the Guilford-Alamance county line.
In an email to The Alamance News, Fowler pointed out that the tax office’s figures apply only to real property and not the personal property, motor vehicles, and utility holdings that also make up a portion of each jurisdiction’s property tax revenues.
“Additionally, each municipality, much like Alamance County, utilizes its own internal forecasting methods when preparing for the upcoming budget cycle,” Fowler went on to inform the newspaper. “For this reason, the numbers each municipality uses for budget preparation may vary from the estimates currently available through our office.”
These individual assessments have been particularly crucial to the property tax estimates in Mebane and Gibsonville. Mebane, for instance, has estimated a natural growth rate of 9.8 percent based, in part, on the taxable development that’s on the drawing board in Orange County.
In Gibsonville, the picture has been complicated even more by a property tax revaluation that Guilford County completed earlier this year. According to Gibsonville’s manager Ben Baxley, the town’s property tax proceeds are expected to rise by $1,879,115, or 32.9 percent, when the reval’s results are factored into the mix. Without the reval, the town would gain $59,115, or 1.04 percent, in revenue due to natural growth in the tax base.
At the end of the day, all of these finely-tuned estimates can be tossed out the window when other factors impinge on the budgetary assumptions of local government administrators.
In Alamance County’s proposed spending plan, these overriding considerations include potential revenue losses that threaten to offset any gains in sales or property tax collections.
In her budget message to Alamance County’s board of commissioners, York pointed to about $4.9 million in revenue reductions and unfunded mandates from the state and federal governments, as well as a 36 percent drop in the county’s investment earnings, which equates to a $2.1-million plunge in funds to cover the county’s expenses.
On the property tax front, York bemoaned the expected loss of about $650,000 in revenue from apartments that qualify as tax exempt thanks to a state court ruling in a 13-year-old lawsuit between Mitchell County and a company called Blue Ridge Housing.
On top of these grim, revenue-related tidings, York has become increasingly fearful about the county’s “undesignated” financial reserves, which have been steadily whittled away through their use as a bookkeeping tool to keep the county’s budget in balance. In her budget message, York recalled that a policy set by the board of commissioners recommends that the county’s general fund have readily available savings, or “fund balance,” that total at least 20 percent of its annual outlays. She warned that these savings are currently on track to reach 15.1 percent of general fund’s budget.
“A strong fund balance is one of the most important signs of financial health,” York went on to admonish the board of commissioners in her budget message. “It ensures steady cash flow, helps us handle disasters, and protects us from major service cuts when revenue falls short. We must now rebuild, not continue to drain it.”
In order to avoid any use of fund balance for the county’s recurring expenses, York has pared back the general fund’s outlays by 1.2 percent while recommending a 2.25-cent hike in the county’s property tax rate to raise an additional $6.2 million in revenue.
A similar solicitousness about savings has also driven the budgetary recommendations of Elon’s town manager Richard Roedner. In the original draft of his spending plan, Roedner observed that the town has recently relied on its savings “to keep a lid on tax increases.” He went on to warn that recent expenditures from the general reserves will bring them down to the 40 percent threshold that the town council had previously established as a floor for these funds. Roedner has recommended a 5-cent property tax hike to allow the town to replenish its savings as well as a whole host of new fees that include metered parking in some parts of town.
In the meantime, cost increases and recent spending commitments had compelled Burlington’s city manager Bob Patterson to propose a 7-cent hike in the municipality’s property tax rate.
In his presentations to Burlington’s city council, Patterson has attributed 4 cents of this increase to the debt payments on various bond-subsidized projects that the city’s voters approved in 2024. He credited the remaining 3 cents to various cost increases in the arena of public safety.
Burlington’s city council has added another cent-worth of expenditures to Patterson’s proposed outlays in order to raise the wages of the city’s police officers and firefighters. [See separate story in this edition.] These pay increases were factored into the final budget that the council adopted on Tuesday along with an 8-cent jump in the city’s property tax rate.
